Most transactions happen through a transfer of bank deposits between different depositor accounts. In other words, a depositor treats his/her bank deposits on par with money and behaves as if it does not fluctuate in value regularly. To appreciate their argument, it is important first to understand that bank liabilities (deposits) are money like instruments. What, then, is the argument in favour of optimality of some level of bank opacity? Tri Vi Dang, Gary Gorton, Bengt Holmström, and Guillermo Ordonez highlight the benefits of some level of bank opacity in their 2019 American Economic Review paper. Since bank managers cannot hide bad assets under a transparent regime, the risk of a sudden collapse of banks due to bad asset quality reduces.Ī 2016 Journal of Accounting Research paper by Viral Acharya and SG Ryan highlights the importance of bank transparency in ensuring financial system stability. The benefits of transparency are well known: it enables investors and depositors to take informed decisions and regulators to act in a timely manner.
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